President Joe Biden has set a course on antitrust and competition policy radically different from recent presidents of both parties. Through key appointments, most notably Federal Trade Commission Chairwoman Lina Khan and Department of Justice Assistant Attorney General for Antitrust Jonathan Kanter, Biden has returned U.S. antitrust to an activist posture not seen since the 1970s.
Khan and Kanter have taken an adversarial stance toward large firms, particularly Big Tech companies. They reject the late-1970s shift in antitrust from a presumption that “big is bad” to the consumer welfare standard, which sees market power as a problem only when consumers suffer price increases or other direct harms. In four years, they have filed antitrust suits against Amazon for online retail, Facebook for social networking, Apple for smartphones, and Google for online advertising. A fifth lawsuit against Google, for online search, was inherited from former President Donald Trump’s DOJ.
Today’s Big Tech companies are worlds away from the railroads and steel makers of earlier antitrust eras. Most of these differences further debunk the premise that big must be bad. Indeed, presuming “big is bad” results in interventions that harm rather than help consumers and create terrible incentives for the next generation of efficient or innovative startups.
All four Big Tech defendants have features of two-sided platforms that bring buyers and sellers together. For example, by making services such as social networking or internet search free for consumers, Facebook and Google grow large and make their services more appealing to firms and advertisers. Platforms with big market shares — “monopolists,” as Khan and Kanter like to call them — result in free services for end consumers.
The FTC and DOJ’s five lawsuits must look beyond high prices when they argue that big is, indeed, bad. Network effects, where larger user bases make platforms even more attractive for new users, provide an example. Khan and Kanter view network effects as entrenching monopolies and requiring government intervention for a level playing field. That may have been true for 19th-century railroads and 20th-century landline phones. But for online platforms, joining one network does not prevent consumers from joining competing networks.
Economists call this “multihoming.” To see it in action, look at the many windows likely open on your computer screen. Joining overlapping or even competing platforms online is common practice — we often seamlessly toggle through them in real time. In this world, network effects can allow early firms to get big quickly and famously. But critically, they also allow tomorrow’s startups to disrupt or unseat those early firms.
Take social networking, where Friendster and MySpace gave way to Facebook, which itself is now losing younger consumers. It’s possible that by the time Facebook’s antitrust trial concludes, even Khan and Kanter will no longer be able to call them a monopoly. Much is at stake in these Big Tech suits, but trials have not yet begun and could take years to conclude.
Khan and Kanter have also targeted mergers and acquisitions, a primary means by which their Big Tech boogeymen have grown over time. They have aggressively challenged recent smaller acquisitions made by Big Tech companies and completed a major overhaul of their agencies’ merger guidelines, signaling even more scrutiny to come.
In this arena, we may already be feeling the impact.
In late 2022 the FTC challenged Facebook parent company Meta’s acquisition of Within, a startup firm with a virtual reality fitness app. The FTC presented the merger as a monopolist buying small competitors before they became dangerous. But the FTC was concerned about market power in a market that Meta’s defense called a “litigation fiction.” At the time the case went to court, the necessary virtual-reality technology was still under development. The case was thrown out of court before trial and looked like an unequivocal loss for Khan and her allies.
Fast forward to early 2024, when Amazon canceled its bid to buy iRobot, maker of the popular vacuum Roomba. The FTC, along with European regulators, had preemptively made the merger more expensive for Amazon. The new merger guidelines and earlier cases convinced Amazon that, win or lose, it was in for an expensive fight. FTC officials celebrated the role their “deterrence” strategy played in torpedoing the merger.
This was no cause for celebration. These firms are part of an M&A market that has evolved to enable innovation rather than stifle it. Digital economy startups are innovative but face huge uncertainty and limited finances. Venture capitalists provide indispensable early investments but need such acquisitions to make their model work. Once again, the FTC and DOJ are more eager to fight Big Tech than understand it.
Four years ago, Khan and Kanter were progressive upstarts given the tongue-in-cheek moniker “hipster antitrust.” By appointing them our nation’s chief competition authorities, Biden mainstreamed their misguided approach. Big Tech continues to be a popular scapegoat for both parties, and today the FTC’s Khan counts many Republicans among her admirers.
We may feel the cost of this antitrust policy for years to come.
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Max Gulker, Ph.D., is a senior policy analyst with Reason Foundation
